USD/JPY Price Tests 144.70 Support After Strong 3.0% US GDP Growth

During the European trading session, the USD/JPY currency pair traded around the 144.60 level, exhibiting range-bound behavior. However, this pattern is expected to shift with the release of the US Personal Consumption Expenditures (PCE) inflation report, a key indicator that could drive significant movement in the US Dollar (USD). 

The report’s outcome will be critical in shaping market expectations regarding the Federal Reserve’s (Fed) policy decisions in the upcoming September meeting.

Key Data Releases:

• US Preliminary GDP (Q2): The economy grew by 3.0%, surpassing the forecasted 2.8%, indicating strong economic performance.
• Unemployment Claims: Came in slightly better than expected at 231K, compared to the forecast of 232K.

Speculation around Fed policy remains divided. The CME FedWatch tool indicates strong expectations for a policy shift, but traders are split on the extent of potential interest rate cuts, with a 34.5% chance of a 50 basis points (bps) cut and others leaning towards a 25 bps reduction.

$XAUUSD

USDJPY Could Risehttps://t.co/Cqp6C0aBiB#XAUUSD #GOLD pic.twitter.com/dLuBtPS3N6

— Kristen (@KristenT15409) August 29, 2024

Japanese Yen Boosted by BoJ Rate Hike Expectations

On the Japanese side, the Yen (JPY) is gaining strength due to rising expectations of further interest rate hikes by the Bank of Japan (BoJ). BoJ Deputy Governor Ryozo Himino recently reiterated the central bank’s commitment to adjusting its monetary easing stance if economic conditions justify it. The upcoming release of Tokyo’s Consumer Price Index (CPI) data for August is also highly anticipated, with forecasts predicting a steady 2.2% growth, excluding Fresh Food.

Key Japanese Factors:

• BoJ Policy Speculation: Increasing expectations of a rate hike are bolstering the JPY.
• Tokyo CPI Data: Scheduled for release on Friday, this data could further influence JPY strength.

Can we talk about how the Japanese yen has been weak for a really long time and arguably has gotten weaker? Because that's a much more likely explanation for a Japan-only price hike than this. https://t.co/Id4CIAF65a

— TLS (@Onshki) August 28, 2024

USD/JPY Technical Outlook: Testing Critical Levels

The USD/JPY pair is currently trading at 144.518, down by 0.06%. It is testing the key pivot point at 144.699, which is crucial for determining the pair’s next direction. The pair is hovering near its 50-day Exponential Moving Average (EMA) at 144.505, a critical support level. The Relative Strength Index (RSI) is neutral at 50, indicating a balanced market without clear momentum.

• Support Levels: Immediate support at 143.686, with further support at 142.903 and 142.119. 
• Resistance Levels: Initial resistance at 145.303, with potential targets at 146.118 and 147.088.

Should the pair fail to hold above the 144.699 pivot, a bearish trend could take hold, making 143.686 the next key support level to watch. Conversely, breaking above the resistance at 145.303 could trigger a bullish momentum, targeting higher levels.